US Energy CFOs bullish on oil price

According to a BDO survey of 100 US oil and gas CFOs, the US energy industry has reason to feel optimistic heading into this year. 63% of the CFOs interviewed said they feel more confident about the US economy and its impact on demand for energy in 2014, a 54% increase from last year’s study. 32% of CFOs said they see increased oil and gas prices as the most important factor driving overall growth for the energy industry this year as the US continues to sell its inexpensively produced resources at high international prices.

Those surveyed also believe that supply and demand dynamics will continue to favour the US industry. CFOs predict that accelerated production of US resources will continue in the new year, with 73% and 76% expecting the domestic supply of natural gas and oil, respectively, to increase this year. An attendant growth in demand is expected to accompany the supply. 62% of those interviewed are expecting domestic demand for natural gas to increase in 2014, and 66% project that domestic demand for oil will grow also. Meanwhile, demand overseas continues to swell with 65% and 64% of CFOs anticipating growth in global demand for oil and natural gas respectively.

CFOs are confident that opportunities fro growth will continue this year, however they remain conscious of challenges facing the industry. 53% believe legislative changes will be a top factor inhabiting overall industry growth this year, a 6% increase on last year. Also, CFOs appear to be worrying about the impact of international events on oil prices. 46% cite ongoing turmoil in the Middle East as having the greatest impact on oil price volatility in the coming years as conflicts continue in the region and Iran plans to ramp up its oil production once sanctions ease. CFOs are also expressing concern that economic growth in Asian countries will cause price fluctuations, with 25% citing it as a top factor, more than a three fold increase over last year’s study.

Comments
Charles Dewhurst, partner and leader of the Natural Resources practice at BDO said, ‘non-conventional resources remain lucrative and continue to expand the US share of the international energy market. But energy executives also know that this highly volatile industry is vulnerable to global events, and are therefore thinking carefully about their contingency plans should the price environment take a turn for the worse.’

Clark Sakschwesky, partner with BDO’s Natural Resources practice said, ‘the regulatory uncertainty the energy industry experienced in the run up to the 2012 election has only slightly abated. The IDC deduction is one of the largest tax breaks available to these companies, and as budget debates continue on the Hill, energy executives are concerned that it might end up on the chopping block.’

Keeping an eye on Washington
The survey also highlighted that industry executives are continuing to express concern that an uncertain legislative and regulatory agenda in Washington may hamper operations. 36% of the CFOs said that regulatory changes are a top political concern when entering 2014, followed by energy industry targeted tax proposals. The interviewees are particularly concerned about the potential loss of the tax deduction for intangible drilling costs, with 53% citing it as their leading tax concern in the new year, down 6% from the previous survey.

Environmental responsibility
54% of the CFOs surveyed said they will focus their risk management activities on environmental regulation in 2014, suggesting that they recognise and accept the need to address the environmental effects of ramped up energy production.

Methodology
The BDO 2014 Energy Outlook Survey is a national telephone survey conducted by Market Measurement, Inc. The interviewers spoke directly to CFOs at a sample of oil and gas exploration and processing firms from September – November 2013.